Comparision (DIAGONAL BEAR PUT SPREAD
VS SHORT STRANGLE)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
SHORT STRANGLE
About Strategy
Diagonal Bear Put Spread
When the trader is neutral – bearish in the near-month and bearish in the mid-month, he will apply Diagonal Bear Put Spread. This strategy involves buying Mid-Month ITM Put Options and selling (short/write) equal number of Near-Month OTM Put Options, of the same underlying asset. This strategy bags limited rewards with limited risk.
This strategy is similar to Short Straddle; the only difference is of the strike prices at which the positions are built. Short Strangle involves selling of one OTM Call Option and selling of one OTM Put Option, of the same expiry date and same underlying asset. Here the probability of making profits is more as there is a spread between the two strike prices, and if ..
DIAGONAL BEAR PUT SPREAD Vs SHORT STRANGLE - Details
DIAGONAL BEAR PUT SPREAD
SHORT STRANGLE
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option) + PE (Put Option)
Number Of Positions
2
2
Strategy Level
Beginners
Advance
Reward Profile
Limited
Limited
Risk Profile
Limited
Unlimited
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Break-even = Strike Price of Put - Net Premium, Upper Break-even = Strike Price of Call+ Net Premium
DIAGONAL BEAR PUT SPREAD Vs SHORT STRANGLE - When & How to use ?
DIAGONAL BEAR PUT SPREAD
SHORT STRANGLE
Market View
Bearish
Neutral
When to use?
When the trader is neutral – bearish in the near-month and bearish in the mid-month, he will apply Diagonal Bear Put Spread. This strategy involves buying Mid-Month ITM Put Options and selling (short/write) equal number of Near-Month OTM Put Options, of the same underlying asset
This strategy is perfect in a neutral market scenario when the underlying is expected to be less volatile.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Sell OTM Call, Sell OTM Put
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Break-even = Strike Price of Put - Net Premium, Upper Break-even = Strike Price of Call+ Net Premium
DIAGONAL BEAR PUT SPREAD Vs SHORT STRANGLE - Risk & Reward
DIAGONAL BEAR PUT SPREAD
SHORT STRANGLE
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Maximum Profit = Net Premium Received
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received
Risk
Limited
Unlimited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs SHORT STRANGLE - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
SHORT STRANGLE
Similar Strategies
Bear Put Spread and Bear Call Spread
Short Straddle, Long Strangle
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Unlimited loss is associated with this strategy, not recommended for beginners. • Limited reward amount.
Advantages
The Risk is limited.
• Higher chance of profitability due to selling of OTM options. • Advantage from double time decay and a contraction in volatility. • Traders can book profit when underlying asset stays within a tight trading range.
